Cash-starved sugar mills unhappy with Centre’s loan package

The Centre on Wednesday decided to offer a second loan package, worth Rs 6,000 crore, to cash-starved sugar mills to help clear cane arrears and sought to offer a 10% interest subsidy on the loan for one year.

According to a decision by the Cabinet Committee on Economic Affairs (CCEA), only those mills that clear at least half of their cane dues by June 30 would be eligible to avail of the loan.

The Centre on Wednesday decided to offer a second loan package, worth Rs 6,000 crore, to cash-starved sugar mills to help clear cane arrears and sought to offer a 10% interest subsidy on the loan for one year. However, the move failed to enthuse the industry which termed it an “inadequate response” to a deep crisis faced by mills.

The basic problem of excessive stocks and lack of a linkage between the price of cane and its by-products hasn’t been addressed, the industry said.

According to a decision by the Cabinet Committee on Economic Affairs (CCEA), only those mills that clear at least half of their cane dues by June 30 would be eligible to avail of the loan. Sources said at least 40% of the mills across the country, mostly the smaller as well as sick ones, are unlikely to be eligible for the succour.

Instead of routing the package for the payment of cane arrears through mills, the government has decided to direct banks to source the list of farmers to be paid for their cane supplies from eligible mills and directly credit the money to their accounts. “Sugar mills will prepare the list of farmers. And on the basis of that, the amount will be directly transferred by banks into the Jan Dhan accounts of farmers,” transport minister Nitin Gadkari said.

Expressing disappointment with the decision, Indian Sugar Mills Association director general Abinash Verma said the move “will not address the basic problem of surplus sugar and depressed sugar prices”. “The decision to bear the interest on the loan for just one year, compared with five years in the previous scheme, is actually not an interest-free loan in the true sense,” he added. In December 2013, the government had announced the first loan package of Rs 6,600 crore, meant to be given to mills exclusively for payment of cane dues. The Centre had sought to offer a 12% interest subsidy for five years.

Verma said to expect the industry to repay the loan of Rs 6,000 crore after one year is actually expecting the industry to make profits equivalent of the same amount within a year. This doesn’t seem possible with a surplus of over 10 million tonnes of sugar and depressed prices, which are roughly Rs 10 per kg below the cost of production, he added.

Making a fresh pitch for the industry’s demand, Verma said: “Instead of giving this loan to the industry, the loan can be extended to a buyer like FCI, MMTC, STC or APEDA, who can buy out 2.5-3 million tonnes of surplus sugar from the industry. This way both the objectives of clearing cane price of farmers as well as reducing the surplus sugar can be solved.”

In May, a sugar industry delegation led by former Union agriculture minister Sharad Pawar had met Prime Minister Narendra Modi and demanded that the government buy 10% of the country’s sugar production this marketing year through September at a price based on the fair and remunerative price (FRP) of cane fixed by the Centre to spur demand and ensure that much of supply is held back from the market for two years. However, the Centre rejected the demand subsequently.

The industry is also sore that the Centre made no effort to check the slide in sugar prices, which are already around six-year lows, nor did it attempt to direct states like Uttar Pradesh to either implement the Rangarajan panel formula for a linkage between cane and by-product prices. The panel had suggested that the mills are made to give 70% of the prices of cane and other by-products or 75% of the price of only sugar to farmers for cane purchases. Currently, the prices of raw materials are higher than the ex-factory prices of sugar.